The FPA Capital Fund (Trades, Portfolio) disclosed it exited four positions when it released its second-quarter portfolio this week.
Part of Los Angeles-based investment firm First Pacific Advisors (Trades, Portfolio), the fund, which is managed by Arik Ahitov, pursues long-term growth of capital by selecting a concentrated number of small and mid-cap companies that have competitive positions and little to no leverage.
The fund closed its positions in Helmerich & Payne Inc. (HP, Financial), Arrow Electronics Inc. (ARW, Financial), Frank’s International NV (FI, Financial) and Cubic Corp. (CUB, Financial).
Helmerich & Payne
In its largest trade of the quarter, the fund sold its remaining 111,420 shares of Helmerich & Payne for an average price of $68.06 per share, impacting the portfolio by -2.79%.
GuruFocus estimates the fund has gained approximately 1% on the investment since the first quarter of 2015.
The Tulsa, Oklahoma-based contract oil and gas well driller has a market cap of $6.98 billion; its shares were trading around $63.96 on Friday with a price-earnings ratio of 15.99, a price-book ratio of 1.55 and a price-sales ratio of 3.21.
The Peter Lynch chart below shows the stock is trading above its fair value, suggesting it is overpriced.
GuruFocus rated Helmerich & Payne’s financial strength 6 out of 10, boosted by a good debt-to-equity ratio and a strong Altman Z-Score of 3.85. The company’s profitability and growth scored a 5 out of 10 rating. Although the company’s operating margin is negative, it still outperforms 51% of competitors. It is also supported by a Piotroski F-Score of 5, which indicates stable business operations, and a business predictability ranking of one out of five stars. According to GuruFocus, companies with this rating see an average gain of 1.1% per year.
Of the gurus invested in Helmerich & Payne, Ken Fisher (Trades, Portfolio) has the largest position with 0.8% of outstanding shares. Other guru shareholders are Chuck Royce (Trades, Portfolio), Pioneer Investments (Trades, Portfolio), Prem Watsa (Trades, Portfolio), First Pacific, Michael Price (Trades, Portfolio), Steven Cohen (Trades, Portfolio) and Paul Tudor Jones (Trades, Portfolio).
Arrow Electronics
FPA cashed in on its 86,059 remaining shares of Arrow Electronics for an average price of $76.12 per share. The trade had an impact of -2.49% on the portfolio.
According to GuruFocus, the fund made an estimated gain of 40% on the investment since the first quarter of 2012.
The electronics distribution company, which is headquartered in Colorado, has a market cap of $6.82 billion; its shares were trading around $77.81 on Friday with a price-earnings ratio of 16.27, a price-book ratio of 1.28 and a price-sales ratio of 0.24.
According to the Peter Lynch chart below, the stock is overpriced as it is trading higher than its fair value.
Arrow’s financial strength and profitability and growth were both rated 6 out of 10 by GuruFocus. While the company has issued $950.9 million in new long-term debt over the past several years, it is still at a manageable level. The Altman Z-Score of 3.13 further solidifies its financial position. Despite the fact the operating margin is expanding, it still underperforms 56% of industry peers. The company also has a moderate Piotroski F-Score of 5 and a one-star business predictability rating.
With 0.35% of outstanding shares, Richard Pzena (Trades, Portfolio) is the company’s largest guru shareholder. First Pacific, Jim Simons (Trades, Portfolio), Jeremy Grantham (Trades, Portfolio), Pioneer, Scott Black (Trades, Portfolio), Charles Brandes (Trades, Portfolio), David Dreman (Trades, Portfolio) and Barrow, Hanley, Mewhinney & Strauss also hold the stock.
Frank’s International
After establishing a 973,900-share holding of Frank’s International in the first quarter, the fund turned around and sold it for an average price of $7.07 per share. The trade had an impact of -1.99% on the portfolio.
GuruFocus data reveals the fund gained an estimated 10% on the investment.
The oilfield services company, which is based in the Netherlands, has a market cap of $1.85 billion; its shares were trading around $8.27 on Friday with a price-book ratio of 1.72 and a price-sales ratio of 4.04.
Based on the price-sales chart below, the stock appears to be trading slightly above its historical median.
Supported by a high Altman Z-Score of 8.35 and a comfortable level of interest coverage, GuruFocus rated Frank’s financial strength 9 out of 10. The company’s profitability and growth did not fare as well, scoring a 4 out of 10 rating, as its operating margin underperforms 86% of competitors. The Piotroski F-Score of 4 indicates business operations are stable.
Hotchkis & Wiley is the company’s largest shareholder among the gurus, holding 6.43% of outstanding shares. First Pacific, Barrow, Hanley, Mewhinney & Strauss, George Soros (Trades, Portfolio), Royce and Joel Greenblatt (Trades, Portfolio) are also shareholders.
Cubic
The fund divested of its remaining 42,490 shares of Cubic for an average price of $66.59 per share, impacting the portfolio by -1.02%.
According to GuruFocus, the fund has gained an estimated 16% on the investment since the fourth quarter of 2014.
The San Diego-based company, which provides diversified systems to the transportation and defense markets, has a market cap of $1.9 billion; its shares were trading around $69.80 on Friday with a forward price-earnings ratio of 32.47, a price-book ratio of 2.77 and a price-sales ratio of 1.31.
The Peter Lynch chart below implies the stock is overpriced since it is trading significantly higher than its fair value.
Cubic’s financial strength and profitability and growth were both rated 6 out of 10 by GuruFocus. Although the company has issued $179.9 million in new long-term debt over the past several years, its Altman Z-Score of 3.91 suggests it is financially healthy. In addition, while the company’s operating margin has declined over the past several years, its Piotroski F-Score of 5 indicates operations are stable. The company also has a one-star business predictability rating.
Of the gurus invested in Cubic, Mariko Gordon (Trades, Portfolio) has the largest holding with 2.89% of outstanding shares. Pzena, Third Avenue Management (Trades, Portfolio), First Pacific, Barrow, Hanley, Mewhinney & Strauss, Simons, Murray Stahl (Trades, Portfolio) and Mario Gabelli (Trades, Portfolio) are also shareholders.
Other trades
During the quarter, FPA Capital also trimmed its positions in Noble Energy Inc. (NBL, Financial), Houghton Mifflin Harcourt Co. (HMHC, Financial), SM Energy Co. (SM, Financial), Rowan Companies PLC (RDC, Financial), Aaron’s Inc. (AAN, Financial) and several other companies.
The fund’s $353 million portfolio, which is composed of 21 holdings, is largely invested in the energy sector, followed by technology and industrials.
According to its fact sheet, the fund underperformed its benchmark, the Russell 2500, in 2017 with a return of -5.11%. The index posted a 16.81% return.
Disclosure: No positions.
